The target warns of compressed profits from the aggressive inventory plan

Target warned investors on Tuesday that its gains would be hit short-term as it reduced unwanted items, canceled orders and took aggressive action to get rid of the extra stock.

The retailer lowered its profit margin expectations for the financial second quarter due to the wave of products that ended up with a big discount or on the customs shelf. Shares fell nearly 4% at noon on Tuesday.

“We thought it wise for us to be decisive, to act quickly, to tackle this, to tackle and optimize our stock in the second quarter – to take the necessary steps to remove the excess stock and prepare to continue to be “Guest is associated with our diversity,” said CEO Brian Cornell in an interview with CNBC.

Taking swift action, Cornell said, Target can prevent further pain and create space for goods that customers want, such as groceries, beauty items, household necessities and seasonal items, such as school supplies. He said the company’s stores and website have a lot of traffic and “a very resilient customer”, but one who no longer buys popular Covid pandemic categories.

“We want to ensure that we continue to lean on those categories that are relevant today,” he said.

Target predicts that the margin margin for the second quarter will be around 2%. This is lower than the outlook he gave less than three weeks ago, when he expected the margin margin to be around 5.3% in the first quarter.

In the last six months of the year, Target expects profit margins to be around 6% – better than its average performance for the autumn years in the years before the pandemic began. The company said it still expects revenue growth to be low to medium single digits for the whole year and to maintain or gain market share in 2022.

Retailers from Walmart to the Gap are facing surplus stocks as buyers who are bitten by inflation bypass the categories that were popular during the first two years of the pandemic. Gap, for example, said customers want party dresses and office wear instead of the many fleece hoods and active clothes the company has. Walmart said some households are making less discreet purchases as gas and grocery prices rise. Abercrombie & Fitch and American Eagle Outfitters reported sharp jumps in stock levels, up 45% and 46%, respectively, from a year ago a combination of unsold items and a easing of supply chain delays.

The extreme change in consumer consumption habits comes as retailers begin to return to healthy levels in stock. This means that some people have plenty of sweatpants, throw pillows and pajamas, just as consumers look for swimwear and suitcases. In addition, some buyers limit their spending due to inflation or spend more than their dollars on experiences such as eating out and traveling.

Cornell said Target decided to develop its new inventory plan after hearing that retail competitors had similar problems. He said the company also wanted to anticipate key sales times, such as back to school and the holidays, when stale goods could clutter stores and drive customers away.

Target said it had a stock of nearly $ 15.1 billion as of April 30, the end of the first quarter. This is about 43% higher than last year.

Target shocked Wall Street on May 18 with a sharp loss of profit for the first quarter of the financial year, as it was hit by fuel and fare costs, higher levels of discounts and a shift away from items such as televisions, small kitchen appliances and bicycles. Shares fell nearly 25 percent, marking the company’s worst day on Wall Street in 35 years.

Walmart also lost earnings expectations. Its stock levels increased by about 33% compared to a year ago. Walmart CEO John Furner said at an investor event on Friday that about 20% of that is commodities that the retailer would like not to have. About a third is extra stock to help the retailer refresh the essentials. He said it would take “two quarters to get back to where we want to be”.

Shares of the company also fell after Target announced on Tuesday. Shares of Walmart fell about 2% on Tuesday afternoon.

Cornell said Target ranks its stock, deciding in some cases to pack merchandise to sell at full price in the future and in other cases to promote or find ways to sell through it now.

For example, he said, Target had a big sales event on Memorial Day weekend to clean bulky exterior items, such as patio furniture, from the back rooms. It has also taken up extra space near US ports to store goods, so it has a place to move goods – some of which arrive too early or too late.

– of CNBC Lauren Thomas contributed to this report.

The target warns of compressed profits from the aggressive inventory plan

Source link The target warns of compressed profits from the aggressive inventory plan

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